The agency sales model is sweeping the car industry like a badly kept secret. One large OEM has already adopted it while others are either making plans to introduce a version or are at least thinking about it.
If you’re a car dealer wondering what the model entails and what impact it might have on dealerships, you’ve come to the right place.
What is the agency model?
Haggling or bargaining has long been both a traditional and essential element of buying a car. The agency model (in its purest form) does away with this aspect. With agency, OEMs own the inventory and set the price, meaning dealerships become their customer service-focused agents. In this scenario, there is less room for negotiation and dealers are there to represent the OEM and guide customers as seamlessly as possible through a stress-free buying experience.
That’s the theory anyway, a brave new world where tense negotiations make way for transparent, fixed pricing. Customers are happier and all parties involved exit the process with a lot less stress.
A new focus on expertise
Dealers become trusted advisors under agency, they help customers find the perfect car and do their utmost to explain features, arrange test drives and walk buyers through the financing process if needed.
With fixed pricing, customers can rest assured that they won’t get a better deal elsewhere, as is the case under the franchise model. Not only that, but consistent pricing may also mean equitable brand performance, in that how sales staff behave in one showroom will play out in other locations bearing the same OEM name. Sticking to a script can, theoretically at least, make for a more consistent customer experience that can more easily developed and honed.
Agency model challenges
As price is already sorted, income on the part of the dealer may quite reasonably shift from commissions to fixed fees. That means dealers will have to adapt to a new financial reality. Agency means reduced control too, of course, as OEMs hold the reins on pricing and inventory. In light of this, collaborating with the manufacturer becomes key, as does flexibility on the part of the dealer. One of the biggest challenges is that agency, with its requisite online buying journey, may favour OEMs when it comes to customer loyalty. Dealers might find it harder to build lasting customer relationships, compared to their tenure under franchise.
Why the change?
In a world that’s been rocked in recent years by supply chain issues, a pandemic and political strife, agency appears to be, for some commentators, a move by OEMs to gain more control and consistency, to have a better eye on customer experience. The chip shortages and other issues have meant a reduction in discounts, which has been a huge deciding factor on getting more control. They want streamlined online buying, haggle-free pricing and happier customers.
Who’s leading the charge?
The only large OEM to have moved to direct selling across its range so far is Mercedes-Benz. Newer brands including Tesla, Genesis and Polestar are use a strain of agency model. Other big names, including Audi and Volkswagen have chosen the EV route as a way to gauge the model’s viability – they’re selling their non-ICE vehicles directly.
The Stellantis Group is also making the move to agency. It’s thought seven of the group’s brands (including Citroen, Fiat and Peugeot) are headed in that direction.
Car dealerships and the road ahead
As more brands implement the agency model, dealers should focus on building strong customer relationships, providing exceptional service and becoming product experts. Agency has these as central planks. Wise dealers will be aware of this and adapt as best they can to the changing landscape. Cox Automotive Insight Director Philip Nothard (and other industry experts) discuss the measures dealers might focus on following the wider implementation of the model in the leading automotive services provider’s Insight Report. Download it here.
Remember too, a sizeable number of brands including Suzuki, Mazda and Renault are reportedly sticking with the franchise model. So, there may be alternatives out there more aligned to what a dealer prefers, if agency is not for them. Wise dealers will be aware of this, as well as other options available, and adapt as best they can to the changing landscape.
Do you know…
the secrets to effective customer engagement on social media? The secret lies in adopting a strategic approach that emphasizes authenticity, active engagement, and entertainment. By focusing on these areas, you can elevate your car dealership’s social media presence, making it more engaging, relatable, and effective at attracting and retaining customers.
